Oil Prices Fall After U.S. Attacks Iraq

Published 7:00 pm, Wednesday, March 19, 2003

Oil prices tumbled in early trading Thursday after the United States launched air attacks on Baghdad but retraced some lost ground later in the day.

The Organization of Petroleum Exporting Countries sought to calm oil markets by announcing that its members have pledged to maximize output to make up for any disruption in crude exports from Iraq.

"I am herewith reiterating OPEC's resolve to make up for any supply shortfall resulting from developing events. To this end, member countries have pledged to use, in the interim, their available excess capacities to ensure continued supply," OPEC's president Abdullah bin Hamad Al-Attiyah said in a statement.

Iraqi crude exports, totaling 2 million barrels a day, are expected to cease as the war intensifies.

The International Energy Agency thanked OPEC for its efforts and said it was ready to take action itself, if needed, to ensure market stability. The Paris-based IEA is a watchdog for the world's major oil-importing countries and has coordinated control over its members' 4 billion barrels in strategic oil reserves. It can authorize members to draw on these reserves to help offset a supply shortage.

April contracts of U.S. light, sweet crude fell to a low of $28.00 a barrel in after-hours trading before rebounding to $29.30 Thursday morning, down 58 cents from Wednesday's close.

"It dropped like a stone," said Peter Gignoux, head of the petroleum desk at Salomon Smith Barney.

In London, May contracts of North Sea Brent crude fell as much as $1.22 to $25.53 a barrel. Brent bounced back, cutting the day's loss to 15 cents a barrel to $26.60 by midday.

Some traders anticipated firmer Brent prices on concerns that the war with Iraq might take longer than many had predicted.

However, Gignoux said he believed the so-called war premium built into prices had yet to fully disappear. Many analysts argued before the start of hostilities that fears of a disruption in Iraqi oil supplies had added more than $5 to the price of each barrel.

"The market doesn't look particularly strong at this juncture," he said.

Over the past three weeks, prices for U.S. light, sweet crude have fallen from their post-Gulf War high of $39.99 a barrel, reached on Feb. 27.

OPEC officials have indicated often in recent weeks that the group would pump more oil if necessary to ensure ample supplies. OPEC's statement Thursday was an explicit commitment to do so.

"While OPEC will continue to closely monitor and react to market developments, it is hoped that the measures taken will contribute to market stability and support world economic recovery," Al-Attiyah said.

The United States and other IEA members view OPEC as the first line of defense in preventing a supply shortage arising from the war.

"We appreciate steps producers have taken to prevent any shortage in world oil supply _ earlier this year and again now. We are determined to promote stability in world oil markets and remain ready to reinforce producers' efforts should the need arise," the IEA's executive director Claude Mandil said in a statement.

The IEA, set up after the Arab oil embargo of 1973, recently suggested it might authorize its members to release oil from their strategic reserves if a conflict affected crude shipments from the Persian Gulf. OPEC worries that such a step would dilute its own influence over crude supplies and might cause oil prices to plunge.